New Credit Card Rules Go Into Effect Monday

You can thank your congressman for all the intended and unintended consequences that the Credit Card Act of 2009 brings with it as it goes into full effect Monday.

Many of us have already felt some of the unintended effects of this “reform” legislation enacted last year as credit card companies were given more than four months to do whatever they wanted before the new rules went into effect for personal – not business – credit cards:

* Our interest rates jumped up on many cards from the single digits to 30 percent.

* Our lines of credit were reduced.

* Some of our cards were canceled without prior notice.

* The 0 percent introductory rates went with the dinosaurs.

Now some of these things would have happened anyway because of the financial mess the banks got themselves in, but a major factor was our elected representatives.

You see, whenever Congress reforms something, it becomes a feeding frenzy – as lobbyists receive huge infusions of cash, which of course they pass on to the congressmen and congresswomen in their pockets to be used for campaign financing so they can get re-elected and pass more reforms. Then the lobbyists help or in fact write the reform legislation.

So keep that in mind the next time your congressman wants to reform something. Hold on to your wallets and purses.

Now I am not saying that everything in the legislation is bad. We just have to be aware of the law of finance – for every person who is helped, someone else is dinged.

Here are some of the things that are going to happen starting tomorrow:

When you ask for a new credit card or an increase in credit, banks must now actually consider your income, assets and liabilities before acting on your plea. That is a sword that cuts both ways – as lawyers like to say – it means that banks are likely to act more responsibly, but people (business cards are not affected) who need it but have less than stellar finances, may not.

Creditcard.com says you won’t be asked to provide financial documents, but new statistical tools – called income estimation models – will be used to estimate your income. And you know what “estimates” means.

Lowcards.com explains the following changes:

* Young adults who are under 21 will have a harder time building up their credit history. If they do not have a job with enough income, they must get an adult to co-sign. Fewer students will have credit cards and this will represent a major shift in spending patterns among young adults. According to a recent Sallie Mae study, 84 percent of college students have a credit card and 92 percent of undergraduate credit cardholders charge textbooks, school supplies, or other direct education expenses.

* The CARD ACT takes a stand against targeting students for credit card offers. Issuers cannot market credit cards within 1,000 feet of a college campus or at college-sponsored events. Issuers must also disclose their agreements with colleges and universities.

* The CARD Act forces a fairer distribution of payments. The minimum payment is still applied to the balance with the lowest interest rate. If a cardholder pays more than the minimum payment, the remainder will be applied to the balance with the highest rate.

“This could be very beneficial to those consumers who always carry a balance but only if you pay more than the minimum payment each month. However, some issuers have doubled the monthly minimum from 2.5% to 5% during the past year for some cardholders. So it may be more difficult for these consumers to realize the benefit from this provision,” says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.

* Due dates for monthly payments will be more standardized and predictable.

The due date must fall on the same day each month. If that date falls on a weekend or holiday, payments are credited on the next business day without a late penalty.

* Consumers cannot be charged a fee for paying their bill unless they choose an expedited payment.

* Your statement must clearly explain how long it will take to pay your balance if you only make minimum payments. It must also state how much you need to pay each month in order to eliminate your balance in three years.

* The CARD Act adds some restrictions to rate increases, but your APR can increase if you have a variable rate card and the card’s index increases.

Issuers do not have to give you a 45-day notice if this is the reason for the rate increase.

* The CARD Act softens the penalty for late payments. If you are more than 60 days late for a payment, your APR can be increased. But if you have six consecutive months of on-time payments, your APR has to be restored to its previous level. Some issuers are changing the name on this from “default pricing” to “penalty pricing.”

* The CARD Act does prohibit over the limit charges unless a consumer “opts in” to allow these transactions to go through and pay the penalty.

Cardholders can opt-in orally, in writing or electronically. This can be revoked at any time. Those that opt in can only be charged one over the limit fee per billing cycle if they exceed their limit, not multiple fees.

* Proof of income is required for new credit. Consumers must prove their ability to make required payments before they can open a new credit card account or increase the credit limit for an existing credit card account.

Issuers must consider the ratio of debt obligations to income, the ratio of debt obligations to assets, or the income the consumer will have after paying debt obligations.

* Fees on secured cards cannot be greater than 25% of the initial credit limit.

* Those companies advertising a “free” credit report have to explain how consumers can obtain a free credit report once a year from each of the credit bureaus.

* Issuers must provide toll-free numbers for consumers to get information about nonprofit credit counseling and debt management assistance.

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Similar Posts:

• Some Bank Fees Drop As The Result Of CARD Act, Others Of Course Increase To Make Up The Loss
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• More Credit and Gift Card Protection, Possible Lower Rates Go Into effect Sunday
• Credit CARD Act Still Causing Confusion
• Credit Card Companies Fail To Provide Full Penalty Rate Disclosures

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